The Myth of Negative Sentiment

Today’s article in Barrons: “The Myth of Negative Sentiment” took the position that negative sentiment in the investor community is a myth, and that the media is unnecessarily sugarcoating economic problems.

I think the article missed the point.

The sugarcoating is not for the investor crowd, it is for everyone else. Investors stand to do well as we move toward an “ownership society“, but the non-investor class is disenfranchised and falling further behind. I’m talking about the concentration of wealth and the distribution of consumption.

The article talks about how investors are heavily invested in equities rather than cash, and how this is a signal of investor optimism. This is true; it is because dividend and capital gains rates have been cut in half (or more) and interest rates on cash accounts are almost zero. Why hold cash when the yield curve is steep and tax rates are so favorable? After-tax investment returns look very promising.

But if you live paycheck-to-paycheck (Barron’s readers might not have any contact with these people…) then your prospects are grim. In the past, debtors could count on inflation to depreciate their past sins. But these days, deflation threatens to put them deeper in debt while giving the wealthy more buying power. Meanwhile social services are being cut and the lions share of tax breaks are going to people making capital gains and receiving dividend income. For them, the whole country is becomming a company town.

The issue is not negative sentiment on the part of investors, but rather social depression. And that is no myth.

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